CERTAIN DEDUCTIONS UNDER SECTION 16

CERTAIN DEDUCTIONS UNDER SECTION 16

Standard deduction- 16(ia) :-

A deduction of Rs.50,000.

Entertainment Allowance – Section 16(ii)


Ø  Purpose: Entertainment allowance is given by the employer to meet the expenditure incurred by the employees in entertaining the customers of the employer.

Ø  Taxability: Entertainment allowance is first included in the gross salary of the employee and thereafter deduction is allowed u/s 16(ii) in the manner given below:

Ø  Deduction: Only government employees (state/central) are entitled to claim deduction u/s 16(ii). Least of the following three figures is available as deduction irrespective of the expenditure actually incurred by the employee:

Ø  Actual entertainment allowance received from the employer; or

Ø  20% of salary exclusive of any allowance, benefit or perquisite; or

Ø  Rs 5,000

Professional Tax – Section 16(ii)

Article 276 of the Constitution of India empowers State Governments/Local Authorities to collect tax on profession, trade and employment. Such tax is commonly known as 'professional tax'.


Particulars

Deductibility of Professional Tax

If professional tax is paid by a person engaged

in carrying, on business/profession

Professional tax is allowed to be debited to P&L A/c on actual

payment basis.

If professional tax is paid by the employee

himself

Professional tax is allowed as deduction from gross salary u/s 16(iii)

on actual payment basis.

If professional tax is paid by the employer on

Ø  Professional tax so paid by the employer shall be first taxable as a


behalf of the employee

monetary perquisite in the hands of the employee u/s 17(2)(iv)

Ø  Subsequently, such professional tax so paid by the employer is allowed as deduction from gross salary u/s 16(iii) on actual

payment basis.

 

Compute taxable Entertainment allowance & net salary of Sri Hanuman Prasad from the following data: Basic salary ` 8,000 p.m. D.A. ` 2,000 p.m. Taxable perquisite ` 35,000, Entertainment Allowance ` 4,000 p.m. Out of such allowance ` 20,000 is expended and balance amount is saved. Assuming he is: a. Government employee b. Non-Government employee.

 

 Mr. Rohit a non-Government employee has the following salary details : a. Basic Salary ` 5,000 p.m. b. D.A. ` 2,000 p.m. c. Entertainment Allowance ` 300 p.m. d. Professional tax paid by employee ` 600 e. LIC Premium paid by employer ` 3,600 f. Income tax paid by employee ` 2,000 g. Professional tax paid by employer on behalf of employee ` 1,600 Find his taxable salary.

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